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Friday, August 27, 2010

Money Management Odds?

Every day millions of investors keep on losing money, investing in what they perceive as good and logical investments.

In the end, it's not logic, or research that causes failure. It's playing against the odds!

The most important aspect to your trading, is money management. Money management is that portion of one's trading system that tells you what portion of your money should you put on a given investment. How much risk should you be willing to take?

Many investors mess up an incredible number of opportunities by not following proper money management routines. In the end, it was all Murphy's Law in action.

The stocks that we were the most sure, they hurt the most. The stocks we were afraid of went up through the roof.

We must not try to make a fortune on just one single pick, but we must not lose big either; it's the overall portfolio's growth and the... Ability to sleep at night that will make us successful.

Do not subject yourself to a lot of stress by investing heavily in each position, and do not freeze if a position goes against you, because you are already in too deep.

Position sizing and buying at the wrong time will be your biggest mistake.

Buy 1,000 shares of a stock and watch it go down the next day. By the time your stock would come back up, you will be a much humbler rabbit, ready to sell just to break even.

Then several days later, the stock is 20 points higher, but you are already out of the game.

Instead of investing aggressively, build positions in stocks in small increments. The risk in each stock is drastically reduced, and you will have what it takes to stay the course. Instead of taking major positions in each stock, spread yourself across a variety of stocks using multiple small buys.

Less risk, and greater returns!